Tag Archives: Rolls-Royce

Think “in the market,” not “go to market”

A friend of mine{{1}} made an astute comment the other day.

We need to think about “in the market” models, rather than “go to market” models.

[[1]]Andy Mulholland @ Capgemini[[1]]

I think this nicely captures the shift we’re seeing in the market; businesses are moving away from offering products which (hopefully) will sell, and adopting models founded on successful long term relationships. This is true for both business-to-consumer and business-to-business relationships, as our success is increasingly dependent on the success of the community we are a part of and the problems that we solve for (our role in) this community.

For a long time we’ve sought that new widget we might offer to the market: the new candy bar everyone wants. It’s the old journey of:

  • find a need,
  • fulfil the need.

Our business models have been built around giving someone something they what, and making a margin on the way through. Sometimes our customers didn’t know that they had the need until we, or their peer group, pointed it out to them, but we were nevertheless, fulfilling a need.

Recent history has seen the more sophisticated version of this emerge in the last few decades:

Give them the razor and sell the razor blades{{2}}.

[[2]]Giving away the razor, selling the blades @ Interesting thing of the day[[2]]

which has the added advantage of fulfilling a reoccurring need. Companies such as HP have made good use of this, more-or-less giving away the printers while pricing printer ink so that it is one of the most expensive substances on the planet (per gram).

Since then, companies (both B2C and B2B) have been working hard to reach customers earlier and earlier in the buying process. Rather than simply responding, after a customer has identified a need, along with the rest of the pack, they want to engage the customer and help the customer shape their need in a way that provides the company with an advantage. A great example of this are the airlines who enable you to buy a short holiday somewhere warm rather than a return trip to some specified destination. The customer gets some help shaping their need (a holiday), while the company has the opportunity to shape the need is a way that prefers their products and services (a holiday somewhere that the airline flies to).

The most recent shift has been to flip this approach on its head. Rather than aligning themselves with the needs they fulfil, some companies are starting to align themselves with the problems they solve. Needs are, after all, just represent potential solutions to a problem.

Nike is an interesting case study. Back in the day Nike was a (marketing driven) sports shoe company. If you needed shoes, then they had shoes. Around 2006—2008 Nike started developing a range of complementary products – web sites, sensors integrated into clothing, etc. – and began positioning the company as providing excellence in running, rather than simply fulfilling a need. The company grew 27% in two years as a result.

Rolls Royce (who I’ve written about before{{3}}) are another good example, but business-to-business. They shifted from the need (jet engines) to the problem (moving the plane) with huge success.

[[3]]What I like about jet engines @ PEG[[3]]

While these companies still have product and service catalogues, what’s interesting is the diversity of their catalogues. Rather than structuring their catalogue around an internal capability (their ability to design and manufacture a shoe or jet engine), the focus is on their role in the market and the capabilities required to support this role.

As Andy said, they have an “in the market” model, rather than a “go to market” model.

What I like about jet engines

Rolls-Royce{{1}} (the engineering company, not the car manufacturer) is an interesting firm. From near disaster in the 70s, when the company was on the brink of failure, Rolls-Royce has spent the last 40 years reinventing itself. Where it used to sell jet engines, now the company sells hot air out the back of the engines, with clients paying only for the hours an engine is in service. Rolls-Royce is probably the one of the cleanest examples of business-technology{{2}} that I’ve come across; with the company picking out the synergies between business and technology to solve customer problems, rather than focusing on trying to align technology delivery with a previously imagined production process to push products at unsuspecting consumers. I like this for a few reasons. Firstly, because it wasn’t a green fields development (like Craig’s List{{3}} et al), and so provides hope for all companies with more than a few years under their belt. And secondly, as the transformation seems to have be the result of many incremental steps as the company felt its way into the future, rather than as the result of some grand, strategic plan.

[[1]]Rolls Royce[[1]]
[[2]]Business-Technology defined @ Forrester[[2]]
[[3]]Craig’s list[[3]]

A Rolls-Royce jet engine

I’ve been digging around for a while (years, not months), looking for good business-technology case studies. Examples of organisations which leverage the synergies between business and technology to create new business models which weren’t possible before, rather than simply deploying applications to accelerate some pre-imagined human process. What I’m after is a story that I can use in presentations and the like, and which shows not just what business-technology is, but also contrasts business-technology with the old business and technology alignment game while providing some practical insight into how the new model was created.

For a while I’ve been mulling over the obvious companies in this space, such as Craig’s List or Zappos{{4}}. While interesting, their stories don’t have the impact that they could as they were green fields developments. What I wanted was a company with some heritage, a history, to provide the longitudinal view this needs.

[[4]]Zappos[[4]]

The company I keep coming back to is Rolls-Royce. (The engineering firm, not the car manufacturer). I bumped into a story in The Economist{{5}}, Britain’s lone high-flier{{6}}, which talks about the challenge of manufacturing in Britain. (Which is, unfortunately, behind the pay wall now.) As The Economist pointed out:

A resurgent Rolls-Royce has become the most powerful symbol of British manufacturing. Its success may be hard to replicate, especially in difficult times.

[[5]]The Economist[[5]]
[[6]]Britain’s lone high-flier @ The Economist[[6]]

With its high costs and (relatively) inflexible workforce, running an manufacturing business out of Britain can be something of a challenge, especially with China breathing down your neck. Rolls-Royce’s solution was not to sell engines, but to sell engine hours.

This simple thought (which is strikingly similar to the tail of the story in Mesh Collaboration{{7}}) has huge ramifications, pushing the company into new areas of the aviation business. It also created a company heavily dependent on technology, from running realtime telemetry around the globe through to knowledge management. The business model — selling hot air out the back of an engine — doesn’t just use technology to achieve scale, but has technology woven into its very fabric. And, most interestingly, it is the result of tinkering, small incremental changes rather than being driven by some brilliant transformative idea.

[[7]]Mash-Up Corporations[[7]]

As with all these long term case studies, the Rolls-Royce story does suffer from applying new ideas to something that occurred yesterday. I’m sure that no one in Rolls-Royce was thinking “business-technology” when the company started the journey. Nor would they have even thought of the term until recently. However, the story still works for me as, for all it’s faults, I think there’s still a lot we can learn from it.

The burning platform was in the late 60s, early 70s. Rolls-Royce was in trouble. The company had 10% market share, rising labour costs, and was facing fierce competition from companies in the U.S. Even worse, these competitors did not have to worry about patents (a hangover from the second world war), they also had a large domestic market and a pipeline of military contracts which put them in a much stronger financial position. Rolls-Royce had to do something radical, or facing being worn down by aggressive competitors who had more resources behind them.

Interestingly, Roll-Royce chose to try and be smarter than the competition. Rather than focus on incremental development, the company decided to designed a completely new engine. Using carbon composite blades and a radical new engine architecture (three shafts rather than two, for those aeronautical engineers out there) their engine was going to be a lot more complex to design, build and maintain. It would also be a lot more fuel efficient and suffer less wear and tear. And it would be more scalable to different aircraft sizes. This approach allows Rolls-Royce to step out of the race for incremental improvements in existing designs (designing a slightly better fan blade) and create a significant advantage, one which would take the company’s competitors more than the usual development cycle or two to erase.

Most of the margin for jet engines, however, is in maintenance. Some pundits even estimate that engines are sold at a loss (though the manufactures claim to make modest margins on all the engines they sell), while maintenance can enjoy a healthy 35%. It’s another case of give them the razor but sell them the razor blades. But if you give away the razors, there’s always the danger that someone else may make blades to fit your razor. Fat margins and commoditized technology resulted in a thriving service market, with the major engine makers chasing each other’s business, along with a horde of independent servicing firms.

Rolls-Royce’s interesting solution was to integrate the expertise from the two businesses: engine development and servicing. Rather than run them as separate businesses, the company convinced customers to pay a fee for every hour an engine was operational. Rather than selling engines, the company sells hot air out the back of an engine. This provides a better deal for the customers (pay for what you use, rather than face a major capital expense), while providing Rolls-Royce with a stronger hold on its customer base.

Integrating the two business also enabled Rolls-Royce to become better at both. Maintenance data helps the company identify and fix design flaws, driving incremental improvements in fuel efficiency while extending the operating life (and time between major services) tenfold over the last thirty years. It also helps the company predict engine failures, allowing maintenance to be scheduled at the most opportune time for Rolls-Royce, and their customers.

Rolls-Royce leveraged this advantage to become the only one of the three main engine-makers with designs to fit the three newest airliners in the market: the Boeing 787 Dreamliner, the Airbus A380 and the new wide-bodied version of the Airbus A350. Of the world’s 50 leading airlines, 45 use its engines.

Today, an operations centre in Derby assess, in real time, the performance of 3,500 jet engines enabling to Rolls-Royce to spot issues before they become problems and schedule just-in-time maintenance. This means less maintenance and more operating hours, fewer breakdowns (and, I expect, happier customers), and the operational data generated is fed back into the design process to help optimise the next generation of engines.

This photograph is reproduced with the permission of Rolls-Royce plc, copyright © Rolls-Royce plc 2010
Rolls-Royce civil aviation operations in Derby

This service-based model creates a significant barrier to competitors for anyone who wants to steal Rolls-Royce’s business. Even if you could clone Rolls-Royce’s technology infrastructure (hard, but not impossible), you would still need to recreate all the tacit operational knowledge the company has captured over the years. The only real option is to recreate the knowledge yourself, which will take you a similar amount of time as it did Rolls-Royce, while Rolls-Royce continues to forge ahead. Even poaching key personnel from Rolls-Royce would only provide a modest boost to your efforts. As I’ve mentioned before{{8}}, this approach has the potential to create a sustainable competitive advantage.

[[8]]One of the only two sources of sustainable competitive advantage available to us today @ PEG[[8]]

While other companies have adopted some aspects of Rolls-Royce’s model (including the Joint Strike Fighter{{9}}, which is being procured under a similar model), Rolls-Royce continues to lead the pack. More than half of its existing engines in service are covered by such contracts, as are roughly 80% of those it is now selling.

[[9]]The Joint Strike Fighter[[9]]

I think that this makes Rolls-Royce a brilliant example of business-technology in action. Rolls-Royce found, by trial and error, a new model that wove technology and business together in a way that created an “outside in” business model, focused on what customers what to buy, rather than on a more traditional “inside out” model based on pushing products out into the market that the company wants to sell. You could even say that it’s an “in the market” model rather than a “go to market” model. And they did this with a significant legacy, rather than as a green fields effort.

In some industries and companies this type of “outside in” approach was possible before advent of the latest generation of web technology, particularly if it was high value and the company already had a network in place (such as Rolls-Royce success). For most companies it is only now becoming possible with business-technology along with some of the current trends, such as cloud computing, which erase many of the technology barriers.

The challenge is to figure out the “in the market” model you need, and then shift management attitude. Given constant change in the market, this means an evolutionary approach, rather than a revolutionary (transformative) one.

We can be our own worst enemy

The only certainties in life are death and taxes, or so we’ve been told on numerous occasions. I’d like to add “change” to the list. Change, be it business change or change in our personal lives, has accelerated to the point that we can expect the environment we inhabit to change significantly in the immediate future, let along over the length of our careers. If we want our business to remain competitive in this ever evolving landscape, then overcoming our (and our team’s) own resistance to change is our biggest challenge.

The rules we have built our careers on, rules forged back in the industrial revolution, are starting to come apart. Most folk—from the Baby Boomers through to Gen Y—expect the skills they acquired in their formative years to support them well through to retirement. How we conduct business might change radically, driven by technological and societal change, but what we did in business could be assumed to change at a slower than generational pace. We might order over the internet rather than via a physical catalogue, or call a person via a mobile rather than call a place via a landline, but skills we learnt in our formative years would still serve us well. For example, project managers manage ever increasingly complex projects over the length of their career, even though how they manage projects has migrated from paper GANTT charts to MS Project, and now onto BaseCamp.

Which is interesting, as it is this what, the doctrine, which most people use to define themselves. A project manager manages projects, and has (most likely) built their career by managing increasingly larger projects and, eventually, programs. Enterprise architects work their way toward managing ever larger transformation programs. Consultants work to become stream leads, team leaders, finally running large teams across entire sectors or geographies. An so on. The length of someones career sees them narrowing their focus to specialise in a particular doctrine, while expanding their management responsibilities. It is this doctrine which most people define themselves by, and their career is an constant investment in doctrine to enhance their skills, increasing their value with respect to the doctrine they chose to focus on.

This is fine in a world when the doctrines a business needs to operate change slower than the duration of a typical career. But what happens if the pace of change accelerates? When the length of the average career becomes significantly longer than the useful life of the doctrines the business requires.

We’ve reached an interesting technological inflection point. Information technology to date could be characterized as the race for automation. The vast bulk of enterprise applications have been focused on automating a previously manual task. This might be data management (general ledger, CRM, et al) or transforming data (SAP APO). The applications we developed were designed as bolt-ons to existing business models. Much like adding an after-market turbo charger to your faithful steed. Most (if not all) of the doctrines in the technology profession have grown to support this model: the development and deployment of large IT assets to support an existing business.

However, the role of technology in business is changing. The market of enterprise applications has matured to the point where a range of vendors can supply you with applications to automate any area of the business you care to name, making these applications ubiquitous and commoditized.The new, emerging, model has us looking beyond business technology alignment, trying and identify new business models which can exploit synergies between the two. A trend Forrester has termed, Business-Technology.

The focus has shifted from asset to outcome, changing the rules we built our careers on. Our tendency to define ourselves by the doctrine we learnt/developed yesterday has become a liability. We focus on how we do something, not why we do it, making it hard to change our habits when the assumptions they are founded on no longer apply. With our old doctrines founded on the development and management of large IT assets, we’re ill-equipped to adapt to the new engagement models Business-Technology requires.

The shift to an outcome focus is part of the acceleration of the pace of business. The winners in this environment are constantly inventing new doctrine as they look for better ways to achieve the same outcome. How we conduct business is changing so rapidly that we can’t expect to be doing the same thing in five years time, let alone for the rest of our career. What we learnt to do in our mid 20’s is no longer (entirely) relevant, and doesn’t deliver the same outcome as it used to. Isn’t the definition of insanity continuing to do something the we know doesn’t work? So why, then, do we continue to launch major transformation programmes when we know they have a low chance of success in the current business and social environment? Doctrine has become dogma.

We need to (re)define ourselves along the lines of “I solve problems”: identifying with the outcomes we deliver, at both personal and departmental levels. This allows us to consider a range of doctrines/options/alternatives and look for the best path forward. If we adopt “I am an TOGAF enterprise architect” (or SixSigma black belt, or Prince2, or …) then they will just crank the handle as the process has become more important than the goal. If we adopt “how can I effectively evolve this IT estate the with tools I have”, then we’ll be more successful.

Rolls-Royce and Craig’s List are good examples of organisations using a focus on outcomes to driver their businesses forward. Bruce Lee might even be the poster child of this problem solving mentality. He studies a wide range of fighting doctrines, and designed some of his own, in an attempt to break his habits and find a better way.

The Value of Enterprise Architecture

Note: Updated with the slides and script from 2011’s lecture.

Is Enterprise Architecture in danger of becoming irrelevant? And if so, what can we do about it?

Presented as part of RMIT’s Master of Technology (Enterprise Architecture) course.

The Value of Enterprise Architecture

Applications let us differentiate, not!

Being involved in enterprise IT, we tend to think that the applications we build, install and maintain will provide a competitive advantage to the companies we work for.

Take Walmart, for example. During the early 80s, Walmart invested heavily in creating a data warehouse to help it analyze its end-to-end supply chain. The data was used to statically optimize Walmart’s supply chain, creating the most efficient, lowest cost supply chain in the world at the time. Half the savings were passed on to Walmart’s customers, half whet directly to the bottom line, and the rest is history. The IT asset, the data warehouse, enabled Walmart to differentiate, while the investment and time required to develop the data warehouse created a barrier to competition. Unfortunately this approach doesn’t work anymore.

Fast forward to the recent past. The market for enterprise applications has grown tremendously since Walmart first brought that data warehouse online. Today, applications providing solutions to most business problems are available from a range of vendors, and at a fraction of the cost required for the first bespoke solutions that blazed the enterprise application trail. Walmart even replaced that original bespoke supply chain data warehouse, which had become something of an expensive albatross, with an off-the-rack solution. How is it possible for enterprise applications to provide a competitive advantage if we’re all buying from the same vendors?

One argument is that differentiation rests in how we use enterprise applications, rather than in the applications themselves. Think of the manufacturing industries (to use a popular analogy at the moment). If two companies have access to identical factories, then they can still make different, and differentiated, products. Now think of enterprise applications as business process factories. Instead of turning out products, we use these factories to turn out business processes. These digital process factories are very flexible. Even if we all start with the same basic functionality, if I’m smarter at configuring the factory, then I’ll get ahead over time and create a competitive advantage.

This analogy is so general that it’s hard to disagree with. Yes, enterprise applications are (mostly) commodities so any differentiation they might provide now rests in how you use them. However, this is not a simple question of configuration and customization. The problem is a bit more nuanced than that.

Many companies make the mistake that customizing (code changes etc) their unique business processes into an application will provide them with a competitive advantage. Unfortunately the economics of the enterprise software market mean that they are more likely to have created an albatross for their enterprise, than provided a competitive advantage.

Applications are typically parameterized bespoke solutions. (Many of the early enterprise applications were bespoke COBOL solutions where some of the static information—from company name through shop floor configuration—has been pushed into databases as configuration parameters. ) The more configuration parameters provided by the vendor, the more you can bend the application to a shape that suits you.

Each of these configuration parameters requires and investment of time and effort to develop and maintain. They complicate the solution, pushing up its maintenance cost. This leads vendors to try and minimize the number of configuration points they provide to a set of points that will meet most, but not all customers’ needs. In practical terms, it is not possible to configure an application to let you differentiate in a meaningful way. The configuration space is simply too small.

Some companies resort to customizing the application—changing its code—to get their “IP” in. While this might give you a solution reflecting how your business runs today, every customization takes you further from a packaged solution (low cost, easy to maintain, relatively straight forward to upgrade …) and closer to a bespoke solution (high cost, expensive to maintain, difficult or impossible to upgrade). I’ve worked with a number of companies where an application is so heavily customized that it is impossible to deploy vendor patches and/or upgrades. The application that was supposed to help them differentiate had become an expensive burden.

Any advantage to be wrung from enterprise IT now comes from the gaps between applications, not from the applications themselves. Take supply chain for example. Most large businesses have deployed planning and supply chain management solutions, and have been on either the LEAN or Six Sigma journey. Configuring your planning solution slightly differently to your competitors is not going to provide much of an edge, as we’re all using the same algorithms, data models and planning drivers to operate our planning process.

Most of the potential for differentiation now lies with the messier parts of the process, such as exception management (the people who deal with stock-outs and lost or delayed shipments). If I can bring together a work environment that makes my exception managers more productive than yours—responding more rapidly and accurately to exceptions—then I’ve created a competitive advantage as my supply chain is now more agile than yours. If I can capture what it is that my exception managers do, their non-linear and creative problem solving process, automate it, and use this to create time and space for my exception managers to continuously improve how supply chain disruptions are handled, then I’ve created a sustainable competitive advantage. (This is why Enterprise 2.0 is so exciting, since a lot of this IP in this space is tacit information or collaboration.)

Simply configuring an application with today’s best practice—how your company currently does stuff—doesn’t cut it. You need to understand the synergies between your business and the technologies available, and find ways to exploit these synergies. The trick is to understand the 5% that really makes your company different, and then reconfiguring both the business and technology to amplify this advantage while commoditizing the other 95%. Rolls-Royce (appears to be) a great example of getting this right. Starting life as an manufacturer of aircraft engines, Rolls Royce has leveraged its deep understanding of how aircraft engines work (from design through operation and maintenance), reifying this knowledge in a business and IT estate that can provide clients with a service to keep their aircraft moving.

There’s more to sustainability than simply using less

I wouldn’t be too surprised if the Australian government passes legislation requiring all residents to shower with a friend in an effort to save water. We’re in a bit of a bind; the longest drought in living memory combined with global warming and climate change means that there is just not enough water to go around.

Energy, water and our population are all interrelated
Energy, water and our population are all interrelated

It’s not just a lack of water causing problems though. Manufacturing more energy (electricity) requires huge amounts of water (for steam), while manufacturing more water requires huge amounts of energy (for desalination). Factor in a growing and increasingly urban population and you quickly realize that washing your car every few weeks and buying energy appliances just won’t cut it.

Take the electrify industry for example. Today’s electricity utilities follow a model that is relatively unchanged since Samuel Insull’s day. Electrons are manufactured in large power stations before they are trucked down wires to where they are consumed by consumer and industrial devices. Demand dictates supply. Electrons are shared equally among devices and if we don’t have enough to meet demand, then everyone gets less than they need. The result is brownouts: motors fuse, traffic lights dim and people crash. Life generally stops.

Electricity production since Samuel Insulls day
Electricity production since Samuel Insull's day

Micro-generation and CHP (combined heat and power) will alleviate the problem somewhat, but if we want an electricity supply for a sustainable future then we need to completely rethink how electricity is managed. We need to move from a demand-driven system, to a supply-driven system. Rather than racing to manufacture enough electricity to fulfill demand, the focus would be on effectively using the energy available to us.

The technology required to reinvent electricity distribution is already emerging into the commercial world. The global rollout of smart metering is providing us with the basic infrastructure for a new, smarter energy distribution system. The challenge is to move beyond conventional centrally run demand management programmes, and adopt more distributed approaches. Technology is already emerging into the commercial arena demonstrating the first tentative steps on this journey.

Imagine if we could import the retail electricity spot price into the home or factory via smart metering. We have national energy markets, so why not create an energy market inside our houses? Local generation (solar, wind, CHP) would have a price set based on required required return on investment, while energy is imported (if required) based on the spot price. The decision if and when to consume electricity is then devolved to the appliances (fridge, air conditioner etc) by letting them bid for the energy they need.

An internal energy market
An internal energy market

The intelligence to support this complex behavior might be buried inside the appliance itself, or mediated via a smart plug. A hot water heater would trade of electricity price, usage profile and current water temperature to optimize its operation. Air conditioners might let the internal temperature rise a couple of degrees if its exceptionally hit out side. A dish washer might wait until a quiet period late at night—long after you’ve gone to bed—before running it’s cycle. Lights would always turn on (of course), but would also turn off again if they cannot detect anyone in the room.

Given an understanding of our usage patterns a market can be used to turn of appliances we don’t need, harvest power then it is cheap (by using waste solar power to pump water up hill), or even sell our excess. Technology enables us to understand our usage patterns and align them with the internal and national energy market to most effectively use the energy available to us.

The new complexity this approach creates could be packaged into solutions. Energy retailers could offer energy plans, analogous to mobile phone plans. Each plan would be tailored to suit different habits and needs. Plans might include value-added solutions, such as installing solar or wind power on premises, integrated into the home market.

In the same way that Threadless and Rolls Royce mined the synergies between business and technology to reinvent their respective industries, some companies might use a supply driven network to transform their business models. Rather than selling electricity (generating more profit by selling more) they might reconfigure themselves into power management companies who help you manage your consumption (generating more profit by selling less). This could range from configuring, monitoring and managing you home appliances to match their performance to your needs, through to installing solar panels on your own roof—at their own cost—so that that they can offer solar power on your internal energy market.

What are the challenges and opportunities created when we move to a supply driven model? What happens when we have supply driven homes? Supply driven committees? Supply driven regions? Or when entire networks become supply driven?

What are the challenges and opportunities created when we move to a supply driven model?
What are the challenges and opportunities created when we move to a supply driven model?

Smart metering and smart plugs are showing us the way. We already have a demand signal, though somewhat delayed, and we can retro-fit appliances with smart plugs to support demand management. The next step is to make this infrastructure a little smarter; upgrading the sensor network to support more distributed command and control, and embedding decision making in the home and, ultimately, the appliances themselves. This enables us to push decision making to the edge of the network where it can scale more effectively, provides us with a generation of much more efficient applications, and sets us up for the future.

Innovation [2009-01-12]

Another week and another collection of interesting ideas from around the Internet.

As always, thoughts and/or comments are greatly appreciated.

This issue:

Innovation [2008-11-03]

Another week and another collection of interesting ideas from around the Internet.

As always, thoughts and/or comments are greatly appreciated.

This issue: